Pyres, Haircuts, and CACs: Lessons from Greco-Multilateralism for Creditors

Abstract

The restructuring of Greece’s debt offers a clean case study of the dynamics of sovereign restructuring. This essay discusses the powerlessness of sovereign creditors, Greece’s predicament, and its resolution through (a) a two-step refinancing with bond accumulation and value injection and (b) collective action legislation and equivalent clauses. The experience suggests that a sovereign insolvency regime should grant priority to post-insolvency creditors over pre-insolvency creditors, should allow voting by classes, and should be conditional on the debtor’s continued compliance with reform and supervision.

Keywords: sovereign insolvency, collective action clause, cac, pari passu clause, Greek restructuring, sovereign rescheduling